Eltek (ELTK) Q2 2026 Earnings Call Transcript

Eltek reported Q2 2026 revenue of $11.5M (down 8% YoY) and a net loss of $2.7M, or $0.41/share, with gross loss narrowing to $1.0M from $1.8M in Q1. Operating loss of $2.5M was attributed to lower volume, production inefficiencies, and U.S. dollar appreciation versus the Israeli shekel; EBITDA swung to a $1.9M loss from positive EBITDA of $2.0M a year earlier. Management cited improving average selling prices and a gradual gross margin recovery as the company ramps two plating lines (first installed and in acceptance testing; second line delayed but targeted for installation by end-2026) and implements a new ERP system, while noting ongoing raw-material constraints (fiberglass) tied to AI infrastructure demand. Despite losses, the company ended with $11.5M cash and no debt, with operating cash flow of $0.7M in the quarter.

Analysis

The key market issue is not demand, it’s conversion efficiency. A backlog-heavy small cap with fixed-cost manufacturing can look “supported” on the top line while equity value still erodes if each incremental dollar of revenue carries subscale margins and FX drag; in that setup, reported revenue is a weak proxy for earnings power for at least the next 1-2 quarters. The cash balance and zero debt reduce near-term solvency risk, but they do not solve the fact that the company is still burning operating leverage while waiting for new capacity to qualify and ramp.

Second-order, the raw-material squeeze matters more than management is implying. If fiberglass inputs are being pulled toward AI infrastructure, smaller PCB makers without procurement scale lose on both price and allocation versus larger peers, which can extend underutilization and keep gross margin negative even if end-demand is strong. That dynamic should favor scaled, diversified names like JBL and TTMI over niche manufacturers until supply normalizes and the new plating lines are fully qualified.

The contrarian miss is that backlog is being treated as de-risking, when a meaningful share is effectively a low-margin, older-FX inventory of orders. Until the mix flips toward current pricing and the second line is installed/qualified, the market should assume the margin recovery is a 6-12 month story, not a next-quarter story. The thesis breaks if Q3 shows a step-function improvement in gross margin or if management can demonstrate materially better pricing on fresh orders, not just capacity installation progress.

Key Decisions for Investors

• Short ELTK on any post-earnings bounce; thesis is that the stock is pricing backlog visibility ahead of margin conversion. Use a tight stop if Q3 gross margin turns positive or management quantifies a meaningful mix shift to current FX orders.
• Pair trade: long TTMI or JBL vs short ELTK for 1-3 months. Rationale: larger PCB/assembly platforms should capture scarce materials and AI-linked demand while ELTK remains stuck in qualification and ramp risk.
• Do not use options unless liquidity is confirmed; the cleaner expression is equity short/pair because the name is likely to gap on thin volume and options pricing may be inefficient.
• Set a watch trigger on Q3 reporting: if gross loss fails to narrow further from Q2, treat the “capacity ramp” story as delayed into 2027 and add to the short on strength.